Startups focus on team composition to draw investors

Many entrepreneurs believe investing in top talent can also help increase enterprise value when they are looking to sell a company.

BANGALORE: Building a team with the right pedigree is proving to be crucial for startups vying for the attention of investors and customers, as they look to differentiate themselves in an increasingly crowded market.

Nearly a dozen startups competed for talent during placement season at the Indian Institute of Management (IIMs) this year snapping up nearly 170 students, while the rush on technology campuses was even keener. Having snapped up 45 students on campus during hiring season at the Indian Institute of Technology (IITs) at the end of 2013, property listing portal Housing.com — cofounded by a dozen IIT Bombay alumni — successfully raised venture funding of $18 million in April.

"People are at the core of everything we do and having a good pedigree helps. Investors recognise that," said Advitiya Sharma, cofounder of Housing.com, who estimates that nearly 150 of his company's 800 employees have a blue-chip degree. With many investors valuing young ventures based on the composition of the team, startups are looking to hire from top colleges to win the perception game.

"Of course there is a premium attached to it," said Parag Dhol, managing director of Inventus Capital Partners, who invested $1 million (Rs 5.8 crore) in Savaari Car Rentals in 2012.

The Bangalore-based startup founded by 38-year old Gaurav Aggarwal a computer science graduate from the Georgia Institute of Technology said his degree made it easy for him to raise money from Inventus and he is now working to increase that advantage. In the last six months, he has hired about a dozen software developers from the National Institutes of Technology and the IITs alone.

Experts are of the view that in the early stages of a business, when valuations are not derived from quantifiable factors, it is mostly the idea and background of the team that influences decision making. "It (pedigree) is very much an influencing factor," said P Thiruvengadam, a senior director at consultancy firm Deloitte.

Many entrepreneurs believe investing in top talent can also help increase enterprise value when they are looking to sell a company. Internet entrepreneur Krishna Kumar who sold his first venture wireless technology provider TechUnified for about Rs 49 crore in 2007 is certain that having employees from top colleges would have helped him derive a better value for the company.

When he set up Simplilearn, an online certification company he has ensured that at least a tenth of the 450-strong team are from top institutes. "I want to take that figure up to 30 %," said Kumar whose company has raised $ 10 million from Helion Venture and Kalaari Capital.

Better decision making ability and broader perspective also marks out graduates from top tier colleges according to Amit Naik, 29, cofounder of online grocery retailer Local Banya. "I don't know how I can objectify or quantify it. But I've seen that they can assimilate a lot more information that others can," said Naik, an alumnus of IIM Lucknow who expects to hire aggressively from top management schools this year.